UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


☒	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended October ~~30, 2021~~29, 2022


☐	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ______to ______.

Commission file number: 000-49885

Kirkland’s, Inc.

(Exact name of registrant as specified in its charter)


Tennessee	62-1287151
(State or other jurisdiction of	(IRS Employer Identification No.)
incorporation or organization)

5310 Maryland Way
Brentwood, Tennessee	37027
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: ~~(615)~~ (615) 872-4800

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	KIRK	NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒No☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☒No☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☐☒
Non-accelerated filer	☒☐	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock, no par value – ~~12,895,352~~12,754,368 shares outstanding as of November ~~26, 2021.~~25, 2022.

Table of Contents

KIRKLAND’S, INC.

TABLE OF CONTENTS


		Page

PART I	FINANCIAL INFORMATION	3
Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets (Unaudited) as of October ~~30, 2021,~~29, 2022, January ~~30, 2021~~29, 2022 and October ~~31, 2020~~30, 2021	3
	Condensed Consolidated Statements of Operations (Unaudited) for the 13-week and 39-week periods ended October ~~30, 2021~~29, 2022 and October ~~31, 2020~~30, 2021	4
	Condensed Consolidated Statements of Shareholders’ Equity (Unaudited) for the 39-week periods ended October ~~30, 2021~~29, 2022 and October ~~31, 2020~~30, 2021	5
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the 39-week periods ended October ~~30, 2021~~29, 2022 and October ~~31, 2020~~30, 2021	6
	Notes to Condensed Consolidated Financial Statements (Unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2220
Item 4.	Controls and Procedures	2221

PART II	OTHER INFORMATION	2322
Item 1.	Legal Proceedings	2322
Item 1A.	Risk Factors	2322
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2322
Item 6.	Exhibits	2322

SIGNATURES		2423

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

KIRKLAND’S, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands, except share data)


	October 30,			January 30,			October 31,			October 29,			January 29,			October 30,
	2021			2021			2020			2022			2022			2021
ASSETS
Current assets:
Cash and cash equivalents	$	26,475		$	100,337		$	37,189		$	11,245		$	25,003		$	26,475
Inventories, net		115,671			62,083			83,874			126,315			114,029			115,671
Income taxes receivable		523			162			5,441
Prepaid expenses and other current assets		9,647			8,116			9,586			7,126			10,537			10,170
Total current assets		152,316			170,698			136,090			144,686			149,569			152,316
Property and equipment:
Equipment		20,261			20,463			20,583			19,929			20,043			20,261
Furniture and fixtures		71,502			72,775			74,121			68,580			69,823			71,502
Leasehold improvements		108,200			109,501			111,155			106,524			106,065			108,200
Computer software and hardware		80,981			79,260			78,636			80,142			77,311			80,981
Projects in progress		3,514			1,429			1,382			2,594			3,366			3,514
Property and equipment, gross		284,458			283,428			285,877			277,769			276,608			284,458
Accumulated depreciation		(231,608	)		(220,018	)		(217,737	)		(235,140	)		(226,611	)		(231,608	)
Property and equipment, net		52,850			63,410			68,140			42,629			49,997			52,850
Operating lease right-of-use assets		128,169			147,334			156,924			136,280			124,684			128,169
Other assets		6,548			5,670			5,831			7,979			6,939			6,548
Total assets	$	339,883		$	387,112		$	366,985		$	331,574		$	331,189		$	339,883
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	68,349		$	55,173		$	53,339		$	47,157		$	62,535		$	68,349
Accrued expenses		28,593			37,454			27,037			27,027			30,811			28,593
Operating lease liabilities		41,763			44,973			46,015			40,156			41,268			41,763
Total current liabilities		138,705			137,600			126,391			114,340			134,614			138,705
Operating lease liabilities		120,095			148,976			159,030			119,254			111,021			120,095
Revolving line of credit											60,000			—			—
Other liabilities		5,320			5,614			8,147			4,915			4,428			5,320
Total liabilities		264,120			292,190			293,568			298,509			250,063			264,120
Shareholders’ equity:
Preferred stock, no par value, 10,000,000 shares authorized; 0 shares issued or outstanding at October 30, 2021, January 30, 2021, and October 31, 2020, respectively		0			0			0
Common stock, no par value; 100,000,000 shares authorized; 13,007,409; 14,292,250; and 14,255,596 shares issued and outstanding at October 30, 2021, January 30, 2021, and October 31, 2020, respectively		175,479			174,391			173,792
Preferred stock, no par value, 10,000,000 shares authorized; no shares issued or outstanding at October 29, 2022, January 29, 2022, and October 30, 2021, respectively											—			—			—
Common stock, no par value; 100,000,000 shares authorized; 12,754,368; 12,631,347; and 13,007,409 shares issued and outstanding at October 29, 2022, January 29, 2022, and October 30, 2021, respectively											174,949			175,856			175,479
Accumulated deficit		(99,716	)		(79,469	)		(100,375	)		(141,884	)		(94,730	)		(99,716	)
Total shareholders’ equity		75,763			94,922			73,417			33,065			81,126			75,763
Total liabilities and shareholders’ equity	$	339,883		$	387,112		$	366,985		$	331,574		$	331,189		$	339,883

The accompanying notes are an integral part of these financial statements.

Table of Contents

KIRKLAND’S, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(in thousands, except per share data)


	13-Week Period Ended						39-Week Period Ended						13-Week Period Ended						39-Week Period Ended
	October 30,			October 31,			October 30,			October 31,			October 29,			October 30,			October 29,			October 30,
	2021			2020			2021			2020			2022			2021			2022			2021
Net sales	$	143,630		$	146,609		$	381,989		$	348,578		$	130,962		$	143,630		$	336,348		$	381,989
Cost of sales		93,817			93,738			252,223			249,751			98,275			93,817			256,844			252,223
Gross profit		49,813			52,871			129,766			98,827			32,687			49,813			79,504			129,766
Operating expenses:
Compensation and benefits		19,549			21,343			60,326			60,157			20,794			19,549			63,193			60,326
Other operating expenses		19,145			16,682			52,491			44,843			16,976			19,589			50,996			53,245
Depreciation (exclusive of depreciation included in cost of sales)		1,655			1,613			4,898			4,683			1,577			1,655			4,870			4,898
Asset impairment		444			177			754			9,027
Total operating expenses		40,793			39,815			118,469			118,710			39,347			40,793			119,059			118,469
Operating income (loss)		9,020			13,056			11,297			(19,883	)
Operating (loss) income														(6,660	)		9,020			(39,555	)		11,297
Interest expense		79			95			240			484			704			79			1,226			240
Other income		(88	)		(86	)		(243	)		(272	)		(80	)		(88	)		(235	)		(243	)
Income (loss) before income taxes		9,029			13,047			11,300			(20,095	)
Income tax expense (benefit)		1,800			691			1,726			(15,650	)
Net income (loss)	$	7,229		$	12,356		$	9,574		$	(4,445	)
(Loss) income before income taxes														(7,284	)		9,029			(40,546	)		11,300
Income tax expense														57			1,800			355			1,726
Net (loss) income													$	(7,341	)	$	7,229		$	(40,901	)	$	9,574

Earnings (loss) per share:
(Loss) earnings per share:
Basic	$	0.54		$	0.87		$	0.69		$	(0.31	)	$	(0.58	)	$	0.54		$	(3.22	)	$	0.69
Diluted	$	0.51		$	0.82		$	0.64		$	(0.31	)	$	(0.58	)	$	0.51		$	(3.22	)	$	0.64
Weighted average shares outstanding:
Basic		13,405			14,249			13,955			14,121			12,754			13,405			12,686			13,955
Diluted		14,268			15,075			14,953			14,121			12,754			14,268			12,686			14,953

The accompanying notes are an integral part of these financial statements.

Table of Contents

KIRKLAND’S, INC.

CONDENSED CONSOLIDATED STATEMENTS OFOF SHAREHOLDERS’ EQUITY (UNAUDITED)

(in thousands, except share data)

	Common Stock						Accumulated			Total Shareholders’
	Shares			Amount			Deficit			Equity			Common Stock						Accumulated			Total Shareholders’
Balance at January 30, 2021		14,292,250		$	174,391		$	(79,469	)	$	94,922
													Shares			Amount			Deficit			Equity
Balance at January 29, 2022														12,631,347		$	175,856		$	(94,730	)	$	81,126
Exercise of stock options		10,669			52			—			52			2,705			16			—			16
Restricted stock issued		30,087			—			—			—			797,849			—			—			—
Net share settlement of stock options and restricted stock units		(11,339	)		(257	)		—			(257	)		(224,320	)		(2,375	)		—			(2,375	)
Stock-based compensation expense		—			232			—			232			—			548			—			548
Repurchase and retirement of common stock		(47,350	)		—			(1,356	)		(1,356	)		(479,966	)		—			(6,253	)		(6,253	)
Net income		—			—			1,719			1,719
Balance at May 1, 2021		14,274,317			174,418			(79,106	)		95,312
Exercise of stock options		20,168			94			—			94
Restricted stock issued		79,775			—			—			—
Net share settlement of stock options and restricted stock units		(7,582	)		(73	)		—			(73	)
Stock-based compensation expense		—			651			—			651
Repurchase and retirement of common stock		(561,548	)		—			(12,008	)		(12,008	)
Net income		—			—			626			626
Balance at July 31, 2021		13,805,130			175,090			(90,488	)		84,602
Net loss														—			—			(7,855	)		(7,855	)
Balance at April 30, 2022														12,727,615			174,045			(108,838	)		65,207
Restricted stock issued		10,606			—			—			—			28,574			—			—			—
Net share settlement of restricted stock units		(2,583	)		(49	)		—			(49	)		(1,821	)		(8	)		—			(8	)
Stock-based compensation expense		—			438			—			438			—			617			—			617
Repurchase and retirement of common stock		(805,744	)		—			(16,457	)		(16,457	)
Net income		—			—			7,229			7,229
Balance at October 30, 2021		13,007,409		$	175,479		$	(99,716	)	$	75,763
Net loss														—			—			(25,705	)		(25,705	)
Balance at July 30, 2022														12,754,368			174,654			(134,543	)		40,111
Stock-based compensation expense														—			295			—			295
Net loss														—			—			(7,341	)		(7,341	)
Balance at October 29, 2022														12,754,368		$	174,949		$	(141,884	)	$	33,065

	Common Stock						Accumulated			Total Shareholders’
	Shares			Amount			Deficit			Equity			Common Stock						Accumulated			Total Shareholders’
Balance at February 1, 2020		13,955,826		$	172,885		$	(95,930	)	$	76,955
Employee stock purchases		34,999			35			—			35
													Shares			Amount			Deficit			Equity
Balance at January 30, 2021														14,292,250		$	174,391		$	(79,469	)	$	94,922
Exercise of stock options														10,669			52			—			52
Restricted stock issued														30,087			—			—			—
Net share settlement of stock options and restricted stock units														(11,339	)		(257	)		—			(257	)
Stock-based compensation expense														—			232			—			232
Repurchase and retirement of common stock														(47,350	)		—			(1,356	)		(1,356	)
Net income														—			—			1,719			1,719
Balance at May 1, 2021														14,274,317			174,418			(79,106	)		95,312
Exercise of stock options														20,168			94			—			94
Restricted stock issued														79,775			—			—			—
Net share settlement of stock options and restricted stock units														(7,582	)		(73	)		—			(73	)
Stock-based compensation expense														—			651			—			651
Repurchase and retirement of common stock														(561,548	)		—			(12,008	)		(12,008	)
Net income														—			—			626			626
Balance at July 31, 2021														13,805,130			175,090			(90,488	)		84,602
Restricted stock issued		32,341			—			—			—			10,606			—			—			—
Net share settlement of restricted stock units		(8,663	)		(8	)		—			(8	)		(2,583	)		(49	)		—			(49	)
Stock-based compensation expense		—			307			—			307			—			438			—			438
Net loss		—			—			(7,438	)		(7,438	)
Balance at May 2, 2020		14,014,503			173,219			(103,368	)		69,851
Restricted stock issued		230,688			—			—			—
Net share settlement of restricted stock units		(5,110	)		(5	)		—			(5	)
Stock-based compensation expense		—			329			—			329
Net loss		—			—			(9,363	)		(9,363	)
Balance at August 1, 2020		14,240,081			173,543			(112,731	)		60,812
Exercise of stock options		1,464			12			—			12
Restricted stock issued		18,575			—			—			—
Net share settlement of restricted stock units		(4,524	)		(39	)		—			(39	)
Stock-based compensation expense		—			276			—			276
Repurchase and retirement of common stock														(805,744	)		—			(16,457	)		(16,457	)
Net income		—			—			12,356			12,356			—			—			7,229			7,229
Balance at October 31, 2020		14,255,596		$	173,792		$	(100,375	)	$	73,417
Balance at October 30, 2021														13,007,409		$	175,479		$	(99,716	)	$	75,763

The accompanying notes are an integral part of these financial statements.

Table of Contents

KIRKLAND’S, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)


	39-Week Period Ended						39-Week Period Ended
	October 30,			October 31,			October 29,			October 30,
	2021			2020			2022			2021
Cash flows from operating activities:
Net income (loss)	$	9,574		$	(4,445	)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Net (loss) income							$	(40,901	)	$	9,574
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Depreciation and amortization of property and equipment		15,535			17,810			12,925			15,535
Amortization of debt issue costs		69			70			69			69
Asset impairment		754			9,027			447			754
(Gain) loss on disposal of property and equipment		(23	)		104
Loss (gain) on disposal of property and equipment								195			(23	)
Stock-based compensation expense		1,321			912			1,460			1,321
Deferred income taxes		0			1,525
Changes in assets and liabilities:
Inventories, net		(53,588	)		10,800			(12,286	)		(53,588	)
Prepaid expenses and other current assets		(1,531	)		(3,124	)		3,184			(1,531	)
Accounts payable		12,588			(4,735	)		(14,648	)		12,588
Accrued expenses		(8,373	)		(1,704	)		(1,873	)		(8,373	)
Income taxes receivable		(849	)		(5,230	)		(1,684	)		(849	)
Operating lease assets and liabilities		(12,876	)		(7,091	)		(4,670	)		(12,876	)
Other assets and liabilities		(1,291	)		570			(427	)		(1,291	)
Net cash (used in) provided by operating activities		(38,690	)		14,489
Net cash used in operating activities								(58,209	)		(38,690	)

Cash flows from investing activities:
Proceeds from sale of property and equipment		44			168			35			44
Capital expenditures		(5,162	)		(7,580	)		(6,964	)		(5,162	)
Net cash used in investing activities		(5,118	)		(7,412	)		(6,929	)		(5,118	)

Cash flows from financing activities:
Borrowings on revolving line of credit		0			40,000			60,000			—
Repayments on revolving line of credit		0			(40,000	)
Refinancing costs		0			(15	)
Cash used in net share settlement of stock options and restricted stock units		(379	)		(52	)		(2,383	)		(379	)
Proceeds received from employee stock option exercises		146			12			16			146
Employee stock purchases		0			35
Repurchase and retirement of common stock		(29,821	)		0			(6,253	)		(29,821	)
Net cash used in financing activities		(30,054	)		(20	)
Net cash provided by (used in) financing activities								51,380			(30,054	)

Cash and cash equivalents:
Net (decrease) increase		(73,862	)		7,057
Net decrease								(13,758	)		(73,862	)
Beginning of the period		100,337			30,132			25,003			100,337
End of the period	$	26,475		$	37,189		$	11,245		$	26,475

Supplemental schedule of non-cash activities:
Non-cash accruals for purchases of property and equipment	$	984		$	414		$	573		$	984

The accompanying notes are an integral part of these financial statements.

Table of Contents

KIRKLAND’S, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1 – Description of Business and Basis of Presentation

Nature of Business — Kirkland’s, Inc. (the “Company”, “we”, “our”, or “us”) is a specialty retailer of home décor in the United States operating ~~369~~356 stores in 35 states as of October ~~30, 2021,~~29, 2022, as well as an e-commerce website, ~~www.kirklands.com.~~www.kirklands.com, under the Kirkland’s Home brand.

Principles of consolidation — The condensed consolidated financial statements of the Company include the accounts of Kirkland’s, Inc. and its wholly-owned subsidiaries, Kirkland’s Stores, Inc., Kirkland’s DC, Inc., and Kirkland’s Texas, LLC. Significant intercompany accounts and transactions have been eliminated.

Basis of presentation — The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and are presented in accordance with the requirements of Form 10-Q and pursuant to the reporting and disclosure rules and regulations of the United States Securities and Exchange Commission (“SEC”). In the opinion of management, all adjustments, including normal recurring accruals, considered necessary for a fair presentation have been included. These financial statements should be read in conjunction with the audited financial statements included in the Company’s Annual Report on Form 10-K filed with the SEC on March ~~26, 2021.~~25, 2022.

~~Impact of the novel coronavirus (“COVID-19”) pandemic~~Macroeconomic conditions — ~~The~~Economic disruption, inflation, uncertainty, volatility and the COVID-19 pandemic ~~has created significant public health concerns as well as economic disruption, uncertainty and volatility, which has~~have affected the Company’s business operations in fiscal 2020 and fiscal 2021. The Company continues to closely monitor the impact of the COVID-19 pandemic on all facets of its business, which includes the impact on its employees, customers, suppliers, vendors, business partners and supply chain networks. While the duration and extent of the COVID-19 pandemic and its impact on the global economy remains uncertain, the Company expects that its business operations and results of operations, including its net sales, earnings and cash flows will continue to be materially impacted.

~~Currently, the COVID-19 pandemic and macroeconomic factors are impacting~~operations. As a result, if these conditions persist and/or worsen, the Company’s ~~supply chain~~accounting estimates and ~~staffing strategies. While inventory levels improved through the 39-week period ended October 30, 2021, the Company continues to run under its budgeted inventory levels with shortages~~assumptions could be impacted in ~~specific inventory categories due to global supply chain constraints~~subsequent periods, and shipping delays. The Company prioritized the shipment of harvest and Christmas merchandise to increase inventory levels in order to meet anticipated customer demand during the fourth quarter of fiscal 2021. As of October 31, 2020, inventory levels were significantly lower than prior years due to the Company cancelling purchase orders in its efforts to manage inventory levels at the outset of the COVID-19 pandemic and having lower inventory receipts due to the temporary store closures in fiscal 2020, while experiencing an increase in demand for home furnishings. The Company has also implemented new incentive programs and recruiting practices to hire and retain qualified workers at its stores and distribution centers for the harvest and Christmas selling seasons during the 13-week period ended October 30, 2021.it is reasonably possible such changes could be significant.

Seasonality — The results of the Company’s operations for the 1313-week and 39-week periods ended October ~~30, 2021~~29, 2022 are not indicative of the results to be expected for any other interim period or for the entire fiscal year due to seasonality factors.

Fiscal year — The Company’s fiscal year ends on the Saturday closest to January 31, resulting in years of either 52 or 53 weeks. Accordingly, fiscal ~~2021~~2022 represents the 52 weeks ending on January ~~29, 2022~~28, 2023 and fiscal ~~2020~~2021 represents the 52 weeks ended on January ~~30, 2021.~~29, 2022.

Use of estimates — The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from the estimates and assumptions used. It should be understood that accounting measurements at interim dates inherently involve greater reliance on estimates than those at fiscal year-end.

Changes in estimates are recognized in the period when new information becomes available to management. Areas where the nature of the estimate makes it reasonably possible that actual results could materially differ from amounts estimated include, but are not limited to, impairment assessments ofon long-lived assets, inventory reserves, self-insurance reserves and deferred tax asset valuation allowances.

Note 2 – Revenue Recognition

Net sales — Net sales includes the sale of merchandise, net of returns, shipping revenue, gift card breakage revenue and revenue earned from our private label credit card program and excludes sales taxes.

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Sales returns reserve — The Company reduces net sales and estimates a liability for sales returns based on historical return trends, and the Company believes that its estimate for sales returns is a reasonably accurate reflection of future returns associated with past sales. However, as with any estimate, refund activity may vary from estimated amounts. The Company had a liability of approximately ~~$1.5~~$1.6 million, ~~$2.0~~$1.4 million and ~~$1.6~~$1.5 million reserved for sales returns at October ~~30, 2021,~~29, 2022, January ~~30, 2021~~29, 2022 and October ~~31, 2020,~~30, 2021, respectively, included in accrued expenses on the condensed consolidated balance sheets. The related sales return reserve ~~product~~products recovery asset included in prepaid expenses and other current assets on the condensed consolidated balance sheets was approximately $~~659,000~~745,000, ~~$850,000~~$697,000 and $~~656,000~~659,000 at October 29, 2022, January 29, 2022, and October 30, 2021, ~~January 30, 2021 and October 31, 2020,~~ respectively.

Deferred e-commerce revenue —The Company recognizes revenue at the time of sale of merchandise to customers in its stores. E-commerce revenue is recorded at the estimated time of delivery to the customer. If the Company receives payment before completion of its customer obligations, the revenue is deferred until the customer takes possession of the merchandise and the sale is complete. Deferred revenue related to e-commerce orders that have been shipped but not estimated to be received by customers included in accrued

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expenses on the condensed consolidated balance sheets was approximately ~~$1.1~~$1.2 million, ~~$1.2~~$1.0 million and ~~$1.6~~$1.1 million at October ~~30, 2021,~~29, 2022, January ~~30, 2021~~29, 2022 and October ~~31, 2020,~~30, 2021, respectively. The related contract assets, reflected in inventory on the condensed consolidated balance sheets, totaled approximately ~~$545,000, $530,000~~$616,000, $518,000 and ~~$708,000~~$545,000 at October 29, 2022, January 29, 2022 and October 30, 2021, ~~January 30, 2021 and October 31, 2020,~~ respectively.

Gift cards —Gift card sales are recognized as revenue when tendered for payment. While the Company honors all gift cards presented for payment, the Company determines the likelihood of redemption to be remote for certain gift card balances due to long periods of inactivity. The Company uses the redemption recognition method to account for breakage for unused gift card amounts where breakage is recognized as gift cards are redeemed for the purchase of goods based upon a historical breakage rate. In these circumstances, to the extent the Company determines there is no requirement for remitting unredeemed card balances to government agencies under unclaimed property laws, such amounts are recognized in the condensed consolidated statements of operations as a component of net sales.

The table below sets forth selected gift card liability information (in thousands) for the periods indicated:

October 30, 2021

January 30, 2021

October 31, 2020

Gift card liability, net of estimated breakage (included in accrued expenses)

$
13,201

$
13,408

$
11,915


	October 29, 2022		January 29, 2022		October 30, 2021
Gift card liability, net of estimated breakage (included in accrued expenses)	$	13,658	$	14,761	$	13,201

The table below sets forth selected gift card breakage and redemption information (in thousands) for the periods indicated:


	13-Week Period Ended				39-Week Period Ended				13-Week Period Ended				39-Week Period Ended
	October 30, 2021		October 31, 2020		October 30, 2021		October 31, 2020		October 29, 2022		October 30, 2021		October 29, 2022		October 30, 2021
Gift card breakage revenue (included in net sales)	$	200	$	208	$	611	$	555	$	189	$	200	$	582	$	611
Gift card redemptions recognized in the current period related to amounts included in the gift card contract liability balance as of the prior period		1,764		1,724		4,303		4,220		1,673		1,764		4,200		4,303

Customer loyalty program — The Company has a loyalty program called the K-club that ~~was redesigned in fiscal 2020 to allow~~allows members to receive points based on qualifying purchases that are converted into certificates that may be redeemed on future purchases. This customer option is a material right and, accordingly, represents a separate performance obligation to the customer under ASC 606 Revenue from Contracts with Customers. The related loyalty program deferred revenue included in accrued expenses on the condensed consolidated balance sheets was approximately ~~$1.1~~$1.2 million, ~~$922,000~~$1.3 million and ~~$131,000~~ $1.1 million at October 29, 2022, January 29, 2022 and October 30, 2021, ~~January 30, 2021 and October 31, 2020,~~ respectively.

Note 3 – Income Taxes

For the 13-week periods ended October ~~30, 2021~~29, 2022 and October ~~31, 2020,~~30, 2021, the Company recorded an income tax expense of ~~19.9%~~approximately $57,000, or 0.8% of the loss before income taxes, and ~~5.3%~~$1.8 million, or 19.9% of income before income taxes, respectively. The change in income taxes for the 13-week period ended October ~~30, 2021,~~29, 2022, compared to the prior year period, was primarily due to ~~calculating~~ the ~~tax provision under~~federal net operating loss carry-forward now projected by the ~~discrete method instead of the annual effective tax rate method in the prior year period.~~

Company for fiscal 2022, which is fully offset by a valuation allowance. For the 39-week periods ended October ~~30, 2021~~29, 2022 and October ~~31, 2020,~~30, 2021, the Company recorded an income tax expense of ~~15.3% of income before income taxes and an income tax benefit of 77.9%~~$355,000, or 0.9% of the loss before income taxes, and $1.7 million, or 15.3% of income before income taxes, respectively. ~~The change in income~~Income taxes for the 39-week period ended October ~~31, 2021, compared to the prior year period, was primarily~~29, 2022 were minimal due to ~~recording a $12.3 million income~~valuation allowances against deferred tax benefit during the prior year period related to the carryback of the 2019 federal net operating loss to prior periods pursuant to the Coronavirus Aid, Relief and Economic Security (“CARES”) Act and recording an additional income tax benefit of $2.0 million related to the carry back of the projected fiscal 2020 loss to years with a 35% statutory tax rate.assets.

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Income tax expense differs from the amount computed by applying the statutory federal income tax rate to (loss) income before income taxes. A reconciliation of income tax expense at the statutory federal income tax rate to the amount provided is as follows (in thousands):


	13-Week Period Ended						39-Week Period Ended
	October 29,			October 30,			October 29,			October 30,
	2022			2021			2022			2021
Tax at federal statutory rate	$	(1,530	)	$	1,896		$	(8,515	)	$	2,373
State income taxes, net of federal benefit		(223	)		300			(689	)		366
Tax credits		17			(29	)		(109	)		(35	)
Executive compensation		(15	)		65			101			80
Stock based compensation programs		(43	)		(50	)		(596	)		(567	)
Valuation allowance		1,843			(409	)		10,150			(519	)
Other		8			27			13			28
Income tax expense	$	57		$	1,800		$	355		$	1,726

The Company recognizes deferred tax assets and liabilities using estimated future tax rates for the effect of temporary differences between the book and tax basis of recorded assets and liabilities, including net operating loss carry forwards. Management assesses the realizability of deferred tax assets and records a valuation allowance if it is more likely than not that all or a portion of the deferred tax assets will not be realized. The Company considers the probability of future taxable income and our historical profitability, among other factors, in assessing the amount of the valuation allowance. Adjustments could be required in the future if the Company estimates that the amount of deferred tax assets to be realized is more than the net amount recorded. Any change in the valuation allowance could have the effect of increasing or decreasing the income tax provision in the statement of operations based on the nature of the deferred tax asset deemed realizable in the period in which such determination is made. As of October ~~30, 2021, January 30, 2021~~29, 2022 and October ~~31, 2020,~~30, 2021, the Company recorded a full valuation allowance against deferred tax assets.

Note 4 – (Loss) Earnings ~~(Loss)~~ Per Share

Basic (loss) earnings ~~(loss)~~ per share is computed by dividing net (loss) income ~~(loss)~~ by the weighted average number of shares outstanding during each period presented. Diluted (loss) earnings ~~(loss)~~ per share is computed by dividing net (loss) income ~~(loss)~~ by the weighted average number of shares outstanding plus the dilutive effect of stock equivalents outstanding during the applicable periods using the treasury stock method. Diluted (loss) earnings ~~(loss)~~ per share reflects the potential dilution that could occur if options to purchase stock were exercised into common stock and if outstanding grants of restricted stock were vested. Stock options and restricted stock units that were not included in the computation of diluted (loss) earnings ~~(loss)~~ per share, because to do so would have been antidilutive, were approximately ~~168,000~~531,000 shares and ~~1.2 million~~168,000 shares for the 13-week periods ended October 29, 2022 and October 30, 2021, ~~and October 31, 2020,~~ respectively, and ~~145,000~~597,000 shares and ~~1.4 million~~145,000 shares for the 39-week periods ended October 29, 2022 and October 30, 2021, ~~and October 31, 2020,~~ respectively.

Note 5 – Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants on the measurement date. The Company uses a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. The carrying amounts of cash and cash equivalents, accounts receivable, other current assets and accounts payable approximate fair value because of their short maturities.

The Company measures certain assets at fair value on a non-recurring basis, including the evaluation of long-lived assets for impairment using Company-specific assumptions, including forecasts of projected financial information that would fall within Level 3 of the fair value hierarchy. The Company uses market participant rents (Level 2 input) to calculate the fair value of right-of-use assets and discounted future cash flows of the asset or asset group using a discount rate that approximates the cost of capital of a market participant (Level 2 input) to quantify fair value for other long-lived assets. ~~See Note 10 –~~

9~~Impairment for further discussion.~~

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Note 6 – Commitments and Contingencies

The Company was named as a defendant in a putative class action filed in April 2017 in the United States District Court for the Western District of Pennsylvania, Gennock v. Kirkland’s, Inc. The complaint alleged that the Company, in violation of federal law, published more than the last five digits of a credit or debit card number on customers’ receipts and sought statutory and punitive damages and attorneys’ fees and costs. On October 21, 2019, the District Court dismissed the matter and ruled that the Plaintiffs did not have standing based on the Third Circuit’s recent decision in Kamal v. J. Crew Group, Inc., 918 F.3d 102 (3d. Cir. 2019). Following the dismissal in federal court, on October 25, 2019, the ~~Plaintiffs~~plaintiffs filed a Praecipe to Transfer the case to Pennsylvania state court, and on August 20, 2020, the court ruled that the ~~Plaintiffs~~plaintiffs have standing. ~~However,~~The Company appealed that ruling, and on April 27, 2022, the ~~court also certified~~Superior Court of Pennsylvania granted the ~~standing issue~~Company’s petition for ~~an interlocutory appeal, and~~permission to appeal. On November 10, 2022, the Company ~~has~~ filed ~~a petition for allowance of appeal~~its Reply Brief with the ~~Pennsylvania Supreme Court.~~Superior Court of Pennsylvania. The Company continues to believe that the case is without merit and intends to continue to vigorously defend itself against the allegations. The matter is covered by insurance, and the Company does not believe that the case will have a material adverse effect on its consolidated financial condition, operating results or cash flows.

The Company was named as a defendant in a putative class action filed in May 2018 in the Superior Court of California, Miles v. Kirkland’s Stores, Inc. The case has been removed to United States District Court for the Central District of California. The complaint alleges, on behalf of Miles and all other hourly Kirkland’s employees in California, various wage and hour violations and seeks unpaid wages, statutory and civil penalties, monetary damages and injunctive relief. Kirkland’s denies the material allegations in the complaint and believes that its employment policies are generally compliant with California law. On March 22, 2022, the District Court denied the plaintiff’s motion to certify in its entirety, and on May 26, 2022, the Ninth Circuit granted the plaintiff’s petition for permission to appeal. The Court has ~~scheduled a hearing on~~stayed the ~~class certification motion for January 14, 2022, and has set a~~entire case ~~management conference for February 11, 2022, at which time~~pending the ~~Court will set trial and related dates.~~appeal. The Company continues to believe the case is without merit and intends to vigorously defend itself against the allegations.

~~Table~~The Company was named as a defendant in a putative class action filed on August 23, 2022 in the United States District Court for the Southern District of ~~Contents~~New York, Sicard v. Kirkland’s Stores, Inc. The complaint alleges, on behalf of Sicard and all other hourly store employees based in New York, that Kirkland’s violated New York Labor Law Section 191 by failing to pay him and the putative class members their wages within seven calendar days after the end of the week in which those wages were earned, rather paying wages on a bi-weekly basis. The Company believes the case is without merit and plans to file a motion to dismiss.

The Company is also party to other pending legal proceedings and claims that arise in the normal course of business. Although the outcome of such proceedings and claims cannot be determined with certainty, the Company’s management is of the opinion that it is unlikely that such proceedings and any claims in excess of insurance coverage will have a material effect on its consolidated financial condition, operating results or cash ~~flows.~~flows.

Note 7 – Stock-Based Compensation

The Company maintains equity incentive plans under which it may grant non-qualified stock options, incentive stock options, restricted stock, restricted stock units, or stock appreciation rights to employees, non-employee directors and consultants. Compensation expense is recognized on a straight-line basis over the vesting periods of each grant. There have been no material changes in the assumptions used to compute compensation expense during the current year. The table below sets forth selected stock-based compensation information (in thousands, except share amounts) for the periods indicated:

13-Week Period Ended

39-Week Period Ended

October 30, 2021

October 31, 2020

October 30, 2021

October 31, 2020

Stock-based compensation expense (included in compensation and benefits on the condensed consolidated statements of operations)

$
438

$
276

$
1,321

$
912

Restricted stock units granted

—

—

152,815

1,050,421

Performance-based restricted stock units granted^(a)

—

—

34,595

—


	13-Week Period Ended				39-Week Period Ended
	October 29, 2022		October 30, 2021		October 29, 2022		October 30, 2021
Stock-based compensation expense (included in compensation and benefits on the condensed consolidated statements of operations)	$	295	$	438	$	1,460	$	1,321
Restricted stock units granted		50,000		—		409,800		152,815
Stock options granted		40,000		—		40,000		—

^(a)~~Assumes 90% target level achievement of the relative performance targets.~~

During the 13-week and 39-week ~~period~~periods ended October 29, 2022 and October 30, 2021, the Company also granted performance-based restricted stock units (“PSUs”) that are subject to the achievement of specified performance ~~goals.~~goals over a specified performance period. The performance metrics for the PSUs are earnings before interest, taxes, depreciation and amortization (“EBITDA”) compared to ~~budgeted~~target EBITDA and also include a relative shareholder return modifier. The number of PSUs presented in the foregoing table represent the shares that can be achieved at the target-level of achievement of the applicable performance metrics. The actual number of shares that will be issued under the performance awards, which may be higher or lower than target, will be determined by the level of achievement of the performance goals and the total shareholder return modifier. As of October 30, 2021, the Company has recorded compensation expense related to the PSUs between their minimum and target value, as the Company currently estimates that ~~the performance metric based on EBITDA for fiscal 2021 will be achieved, but it will be below its target level. If the performance targets are achieved, the PSUs~~no shares will be issued ~~based on~~with respect to the ~~achievement level, including the relative shareholder return modifier, and will cliff vest~~PSUs granted in ~~full on February 3, 2024.~~fiscal 2021 or 2022.

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Note 8 – Share Repurchase Plan

On December 3, 2020, September ~~24, 2018,~~2, 2021, and January 6, 2022, the Company announced that its Board of Directors authorized a share repurchase plan providing for the purchase in the aggregate of up to ~~$10~~$20 million, $20 million and $30 million, respectively, of the Company’s outstanding common stock. This share repurchase plan was completed during the fourth quarter of fiscal 2020. On December 3, 2020, the Company announced that its Board of Directors authorized a new share repurchase plan providing for the purchase in the aggregate of up to $20 million of the Company’s outstanding common stock. This share repurchase plan was completed during the 13-week period ended October 30, 2021. On September 2, 2021, the Company announced that its Board of Directors authorized a new share repurchase plan providing for the purchase in the aggregate of $20 million of the Company’s outstanding common stock. Repurchases of shares are made in accordance with applicable securities laws and may be made from time to time in the open market or by negotiated transactions. The amount and timing of repurchases are based on a variety of factors, including stock price, regulatory limitations and other market and economic factors. The share repurchase plan does not require the Company to repurchase any specific number of shares, and the Company may terminate the repurchase plan at any time. As of October ~~30, 2021,~~29, 2022, the Company had approximately ~~$10.0~~$26.3 million remaining under the current share repurchase plan. The table below sets forth selected share repurchase plan information (in thousands, except share amounts) for the periods indicated:

13-Week Period Ended

39-Week Period Ended

October 30, 2021

October 31, 2020

October 30, 2021

October 31, 2020

Shares repurchased and retired

805,744

0

1,414,642

0

Share repurchase cost

$
16,457

$
0

$
29,821

$
0


	13-Week Period Ended				39-Week Period Ended
	October 29,		October 30,		October 29,		October 30,
	2022		2021		2022		2021
Shares repurchased and retired		—		805,744		479,966		1,414,642
Share repurchase cost	$	—	$	16,457	$	6,253	$	29,821

Note 9 – Senior Credit Facility

On December 6, 2019, the Company entered into a Second Amended and Restated Credit Agreement (the “Credit Agreement”) with Bank of America, N.A. as administrative agent, collateral agent and lender. The Credit Agreement contains a ~~$75~~$75 million senior secured revolving credit facility, a swingline availability of ~~$10~~$10 million, a ~~$25~~$25 million incremental accordion feature and a maturity date

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of December 2024. Advances under the Credit Agreement bear interest at an annual rate equal to the London Interbank Offered Rate (“LIBOR”) plus a margin ranging from 125 to 175 basis points with no LIBOR floor, and the fee paid to the lender on the unused portion of the credit facility is 25 basis points per annum.

Borrowings under the Credit Agreement are subject to certain conditions, and the Credit Agreement contains customary events of default, including, without limitation, failure to make payments, a cross-default to certain other debt, breaches of covenants, breaches of representations and warranties, a change in control, certain monetary judgments and bankruptcy and certain events under the Employee Retirement Income Security Act of 1974 (“ERISA”). Upon any such event of default, the principal amount of any unpaid loans and all other obligations under the Credit Agreement may be declared immediately due and payable. The maximum availability under the Credit Agreement is limited by a borrowing base formula, which consists of a percentage of eligible inventory and eligible credit card receivables, less reserves.

The Company is subject to a Second Amended and Restated Security Agreement (the “Security Agreement”) with its lender. Pursuant to the Security Agreement, the Company pledged and granted to the administrative agent, for the benefit of itself and the secured parties specified therein, a lien on and security interest in all of the rights, title and interest in substantially all of the Company’s assets to secure the payment and performance of the obligations under the Credit Agreement.

As of October ~~30, 2021,~~29, 2022, the Company was in compliance with the covenants in the Credit Agreement. Under the Credit Agreement, there were 0$60.0 million in outstanding borrowings and ~~a $600,000 letter~~no letters of credit outstanding with approximately ~~$74.4~~$15.0 million available for borrowing as of October ~~30, 2021.~~29, 2022.

~~Note 10 – Impairment~~

The Company evaluates the recoverability of the carrying amounts of long-lived assets when events or changes in circumstances dictate that their carrying values may not be recoverable. This review includes the evaluation of individual under-performing retail stores and the assessment of the recoverability of the carrying value of the assets related to the stores. Future cash flows are projected for the remaining lease life. If the estimated future cash flows are less than the carrying value of the assets, the Company records an impairment charge equal to the difference between the assets’ fair value and carrying value. The fair value is estimated using a discounted cash flow approach, considering such factors as future sales levels, gross margins, changes in rent and other expenses as well as the overall operating environment specific to that store. The amount of the impairment charge is allocated proportionately to all assets in the asset group with no asset written down below its individual fair value.

~~The table below sets forth impairment information (in thousands, except store counts) for the periods indicated:~~11

13-Week Period Ended

39-Week Period Ended

October 30, 2021

October 31, 2020

October 30, 2021

October 31, 2020

Impairment of leasehold improvements, fixtures and equipment at stores

$
444

$
162

$
754

$
2,782

Impairment of right-of-use-assets

—

15

—

6,245

Total impairment

$
444

$
177

$
754

$
9,027

Total impairment, net of tax

$
334

$
121

$
568

$
6,927

Number of stores with leasehold improvements, fixtures and equipment impairment

2

4

4

22

Number of stores with right-of-use-asset impairment

—

2

—

24

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~~Note 11~~Note 10 – New Accounting Pronouncements

New Accounting Pronouncements Not Yet Adopted

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which amends the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in more timely recognition of losses. The new guidance applies to financial assets measured at amortized cost basis, including receivables that result from revenue transactions and held-to-maturity debt securities. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022 for non-accelerated filers, and early adoption is permitted for fiscal years beginning after December 15, 2018. The Company anticipates adopting this guidance in the fourth quarter of fiscal 2021 and does not expect the adoption of this guidance to have a material impact on its condensed consolidated financial statements and related disclosures.

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This guidance is in response to accounting concerns regarding contract modifications and hedge accounting because of impending rate reform associated with structural risks of interbank offered rates, ~~(“IBORs”),~~ and, particularly, the risk of cessation of the LIBOR related to regulators in several jurisdictions around the world having undertaken reference rate reform initiatives to identify alternative reference rates. The guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The adoption of this guidance is effective for all entities as of March 12, 2020 through December 31, 2022. The Company does not expect the adoption of this guidance to have a material impact on its condensed consolidated financial statements and related disclosures.

Note 11 – Subsequent Event

Subsequent to October 29, 2022, the Company repaid $30.0 million of outstanding borrowings on the Credit Agreement.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

~~Forward-Looking Statements~~

~~This~~The following discussion and analysis is intended to provide the reader with information that will assist in understanding the significant factors affecting our consolidated operating results, financial condition, liquidity, and capital resources during the 13-week and 39-week periods ended October 29, 2022 and October 30, 2021. For a comparison of our results of operations for the 52-week periods ended January 29, 2022 and January 30, 2021, see “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations (“MD&A”) is intended to provide an understanding~~Operations” of our financial condition, change in financial condition, cash flow, liquidity and results of operations. The following MD&A discussion should be read in conjunction with the condensed consolidated financial statements and notes to those statements that appear elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the fiscal year ended January ~~30, 2021,~~29, 2022, filed with the SEC on March ~~26, 2021 (the “Annual Report”). The following~~25, 2022. This discussion ~~contains~~should be read with our consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q.

Forward-Looking Statements

Except for historical information contained herein, certain statements in this Quarterly Report on Form 10-Q constitute forward-looking statements that ~~reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed or referred~~are subject to in the forward-looking statements. Factors that could cause or contribute to any differences include, but are not limited to, those discussed under the caption “Cautionary Statement for Purposes of the ‘Safe Harbor’ Provisionssafe harbor provisions of the Private Securities Litigation Reform Act of ~~1995”~~1995. Forward-looking statements deal with potential future circumstances and developments and are, accordingly, forward-looking in nature. You are cautioned that such forward-looking statements, which may be identified by words such as “anticipate,” “believe,” “expect,” “estimate,” “intend,” “plan,” “seek,” “may,” “could,” “strategy,” and similar expressions, involve known and unknown risks and uncertainties, which may cause our actual results to differ materially from forecasted results. Those risks and uncertainties include, among other things, risks associated with the Company's liquidity including cash flows from operations and the amount of borrowings under ~~Part II, Item 1A - “Risk Factors.”~~the secured revolving credit facility, the Company’s actual and anticipated progress towards its short-term and long-term objectives including its brand transformation strategy, the timing of normalized macroeconomic conditions from the impacts of global geopolitical unrest and the COVID-19 pandemic on the Company’s revenues, inventory and supply chain, the continuing consumer impact of inflation and countermeasures, including raising interest rates, the effectiveness of the Company’s marketing campaigns, risks related to changes in U.S. policy related to imported merchandise, particularly with regard to the impact of tariffs on goods imported from China and strategies undertaken to mitigate such impact, the Company’s ability to retain its senior management team, continued volatility in the price of the Company’s common stock, the competitive environment in the home décor industry in general and in our specific market areas, inflation, fluctuations in cost and availability of inventory, increased transportation costs and potential interruptions in supply chain, distribution systems and delivery network, including our e-commerce systems and channels, the ability to control employment and other operating costs, availability of suitable retail locations and other growth opportunities, disruptions in information technology systems including the potential for security breaches of our information or our customers’ information, seasonal fluctuations in consumer spending, and economic conditions in general. Those and other risks are more fully described in our filings with the Securities and Exchange Commission, including the Company’s Annual Report on Form 10-K filed on March 25, 2022 and subsequent reports. Forward-looking statements included in this Quarterly Report on Form 10-Q are made as of the date hereof. Any changes in assumptions or factors on which such statements are based could produce materially different results. Except as required by law, we disclaim any obligation to update any such factors or to publicly announce results of any revisions to any of the forward-looking statements contained herein to reflect future events or developments.

~~Introduction~~Overview

We are a specialty retailer of home ~~décor~~furnishings in the United ~~States, operating 369~~States. As of October 29, 2022, we operated a total of 356 stores in 35 states, ~~as of October 30, 2021,~~ as well as an e-commerce website, www.kirklands.com. Our stores present a curated selection of distinctive merchandise, including holiday décor, furniture, textiles, wall décor, decorative accessories, art, mirrors, fragrances and other home decorating items. Our stores offer an extensive assortment of holiday merchandise during seasonal periods.www.kirklands.com, under the Kirkland’s Home brand. We provide our customers with an engaging shopping experience characterized by a curated, affordable selection of home ~~décor and~~furnishings along with inspirational design ideas. ~~We believe that this~~This combination of quality and stylish merchandise, value pricing and a stimulating online and store experience allows our customers to furnish their home onat a ~~budget.~~great value.

~~Impact of~~Macroeconomic Conditions

Economic disruption, inflation, uncertainty, volatility and the COVID-19 ~~Pandemic on Our Business~~

~~The COVID-19~~ pandemic ~~has created significant public health concerns as well as economic disruption, uncertainty and volatility, which has~~have affected ~~our~~the Company’s business ~~operations in fiscal 2020 and fiscal 2021.~~operations. We continue to closely monitor the impact of ~~the COVID-19 pandemic~~these macroeconomic conditions on all facets of our business, which includes the impact on our employees, customers, suppliers, vendors, business partners and supply chain networks. All of our stores and distribution centers are currently open with enhanced safety measures. The health and safety of our employees and customers are the primary concerns of our management team. We have taken numerous actions to promote health and safety, including providing personal protective equipment to our employees, establishing mask protocols in our facilities, rolling out additional functionality to support contactless shopping experiences, implementing additional cleaning and sanitation procedures and promoting social distancing. While the duration and extent of ~~the COVID-19 pandemic~~these conditions and ~~its~~their impact on the global economy remains uncertain, we expect that our business operations and results of operations, including our net sales, earnings and cash flows will continue to be materially impacted.

~~Currently,~~There are numerous uncertainties surrounding macroeconomic conditions and their impact on the ~~COVID-19 pandemic~~economy and ~~macroeconomic factors are impacting~~ our ~~supply chain and staffing strategies. While inventory levels improved through~~business, as further described in “Item 1A. Risk Factors” of our 2021 Annual Report on Form 10-K for the ~~39-week period~~fiscal year ended ~~October 30, 2021, we continue~~January 29, 2022, which

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makes it difficult to ~~run under~~predict the impact on our ~~budgeted inventory levels with shortages in specific inventory categories due to global supply chain constraints and shipping delays. We prioritized the shipment~~business, financial position, or results of harvest and Christmas merchandise to increase inventory levels in order to meet anticipated customer demand during the fourth quarter of fiscal 2021. As of October 31, 2020, inventory levels were significantly lower than prior years due to our cancelling of purchase orders in our efforts to manage inventory levels at the outset of the COVID-19 pandemic and having lower inventory receipts due to the temporary store closuresoperations in fiscal ~~2020, while experiencing an increase in demand for home furnishings.~~2022 and beyond. We ~~have also implemented new incentive programs and recruiting practices to hire and retain qualified workers~~cannot predict these uncertainties, or the corresponding impacts on our business, at ~~our stores and distribution centers for the harvest and Christmas selling seasons during the 13-week period ended October 30, 2021.~~this time.

~~OVERVIEW OF KEY FINANCIAL MEASURES~~Key Financial Measures

Net sales and gross profit are the most significant drivers of our operating performance. Net sales consists of all merchandise sales to customers, net of returns, shipping revenue associated with e-commerce sales, ~~and~~ gift card breakage revenue, revenue earned from our private label credit card program and excludes sales taxes. Gross profit is the difference between net sales and cost of sales. Cost of sales has various distinct components, including: merchandise cost (including product cost, inbound freight expense, inventory shrink and damages), store occupancy costs, outbound freight costs (including both store and e-commerce shipping expenses), central distribution costs and depreciation of store and distribution center assets. Product and outbound freight costs are variable, while occupancy and central distribution costs are largely fixed. Accordingly, gross profit expressed as a percentage of net sales can be influenced by many factors including overall sales performance.

We use comparable sales to measure sales increases orand decreases from stores that have been open for at least 13 full fiscal months, including our ~~e-commerce~~online sales. ~~Closed~~We remove closed stores ~~are removed~~ from ~~the~~our comparable sales calculation the day after the ~~store closes.~~stores close. Relocated stores remain in our comparable sales calculation. E-commerce ~~store~~ sales, including shipping revenue, are included in comparable sales. Increases in comparable sales are an important factor in maintaining or increasing our profitability.

~~Gross profit is~~Operating expenses, including the ~~difference between net sales~~costs of operating our stores and ~~cost~~corporate headquarters, are also an important component of ~~sales. Cost~~our operating performance. Compensation and benefits comprise the majority of ~~sales has various distinct components including: landed product costs (including inbound freight), inventory damages, inventory shrinkage, store occupancy costs (including rent~~our operating expenses. Operating expenses contain fixed and ~~depreciation of leasehold improvements and other property and equipment), outbound freight costs to stores, e-commerce shipping expenses and central distribution costs (including operational~~variable costs, and ~~depreciation of leasehold improvements and other property and equipment). Product and outbound freight costs are variable, while occupancy and central distribution costs are largely fixed.~~

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~~Accordingly, gross profit~~managing the operating expense ratio (operating expenses expressed as a percentage of net ~~sales can be influenced by many factors, including overall sales performance.~~

~~Store Optimization~~

~~As part~~sales) is an important focus of our store optimization strategy, which includes exiting unprofitable stores and continuing to reduce the store base over the next several years, we permanently closed six store locations and opened two new store locations during the 39-week period ended October 30, 2021. We are prioritizing sustained improvement in overall profitability and developing a future state plan for infrastructure that complements our omni-channel concept and improves the customer experience. We anticipate additional store closures and limited store openingsmanagement as we ~~continue~~seek to ~~execute~~increase our ~~store optimization strategy. We believe~~overall profitability. Operating expenses include cash costs as well as non-cash costs, such as depreciation and amortization associated with omni-channel technology, corporate property and equipment, and impairment of long-lived assets. Because many operating expenses are fixed costs, and because operating costs tend to rise over time, increases in comparable sales typically are necessary to prevent meaningful increases in the operating expense ratio. Operating expenses can also include certain costs that are of a one-time or non-recurring nature. While these costs must be considered to fully understand our ~~ideal store count should be approximately 350 stores with additional opportunities for more favorable rent terms during ongoing lease renewals.~~operating performance, we typically identify such costs separately where significant in the consolidated statements of operations so that we can evaluate comparable expense data across different periods.

Stores

The following table summarizes our store openings and closings during the periods indicated:


	13-Week Period Ended					39-Week Period Ended						13-Week Period Ended						39-Week Period Ended
	October 30, 2021		October 31, 2020			October 30, 2021			October 31, 2020			October 29, 2022			October 30, 2021			October 29, 2022			October 30, 2021
New store openings		—		—			2			—			1			—			1			2
Permanent store closures		—		6			6			51			1			—			6			6
Store relocations		1		—			2			—			—			1			—			2
Decrease in store units	0.0%			(1.6	)%		(1.1	)%		(11.8	)%		0.0	%		0.0	%		(1.4	)%		(1.1	)%

The following table summarizes our open stores and square footage under lease as of the dates indicated:


	October 30, 2021		October 31, 2020		October 29, 2022		October 30, 2021
Number of stores		369		381		356		369
Square footage		2,956,731		3,039,097		2,855,146		2,956,731
Average square footage per store		8,013		7,977		8,020		8,013

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13-Week Period Ended October ~~30, 2021~~29, 2022 Compared to the 13-Week Period Ended October ~~31, 2020~~30, 2021

Results of operations. The table below sets forth selected results of our operations both in dollars (in thousands) and as a percentage of net sales for the periods indicated:


	13-Week Period Ended
	October 29, 2022						October 30, 2021						Change
	$			%			$			%			$			%
Net sales	$	130,962			100.0	%	$	143,630			100.0	%	$	(12,668	)		(8.8	)%
Cost of sales		98,275			75.0			93,817			65.3			4,458			4.8
Gross profit		32,687			25.0			49,813			34.7			(17,126	)		(34.4	)
Operating expenses:
Compensation and benefits		20,794			15.9			19,549			13.6			1,245			6.4
Other operating expenses		16,976			13.0			19,589			13.6			(2,613	)		(13.3	)
Depreciation (exclusive of depreciation included in cost of sales)		1,577			1.2			1,655			1.2			(78	)		(4.7	)
Total operating expenses		39,347			30.1			40,793			28.4			(1,446	)		(3.5	)
Operating (loss) income		(6,660	)		(5.1	)		9,020			6.3			(15,680	)		(173.8	)
Interest expense		704			0.6			79			0.1			625			791.1
Other income		(80	)		(0.1	)		(88	)		(0.1	)		8			(9.1	)
(Loss) income before income taxes		(7,284	)		(5.6	)		9,029			6.3			(16,313	)		(180.7	)
Income tax expense		57			0.0			1,800			1.3			(1,743	)		(96.8	)
Net (loss) income	$	(7,341	)		(5.6	)%	$	7,229			5.0	%	$	(14,570	)		(201.5	)%

13-Week Period Ended

October 30, 2021

October 31, 2020

Change

$

%

$

%

$

%

Net sales

$
143,630

100.0
%

$
146,609

100.0
%

$
(2,979
)

(2.0
)%
Cost of sales

93,817

65.3

93,738

63.9

79

0.1

Gross profit

49,813

34.7

52,871

36.1

(3,058
)

(5.8
)
Operating expenses:

Compensation and benefits

19,549

13.6

21,343

14.6

(1,794
)

(8.4
)
Other operating expenses

19,145

13.3

16,682

11.4

2,463

14.8

Depreciation (exclusive of depreciation
included in cost of sales)

1,655

1.2

1,613

1.1

42

2.6

Asset impairment

444

0.3

177

0.1

267

150.8

Total operating expenses

40,793

28.4

39,815

27.2

978

2.5

Operating income

9,020

6.3

13,056

8.9

(4,036
)

(30.9
)
Interest expense

79

0.1

95

0.1

(16
)

(16.8
)
Other income

(88
)

(0.1
)

(86
)

(0.1
)

(2
)

2.3

Income before income taxes

9,029

6.3

13,047

8.9

(4,018
)

(30.8
)
Income tax expense

1,800

1.3

691

0.5

1,109

160.5

Net income

$
7,229

5.0
%

$
12,356

8.4
%

$
(5,127
)

(41.5
)%

Net sales. Net sales decreased ~~2.0%~~8.8% to ~~$143.6~~$131.0 million for the third 13 weeks of fiscal ~~2021~~2022 compared to ~~$146.6~~$143.6 million for the prior year ~~period driven by 3% fewer stores and a decline in in-store traffic, partially offset by an increase in order value due to increased sales of larger ticket items, including furniture.~~period. Comparable sales, including e-commerce sales, decreased ~~0.7%~~7.0%, or ~~$945,000~~$9.8 million, for the third 13 weeks of fiscal ~~2021~~2022 compared to the prior year period. Comparable sales, including e-commerce sales, ~~increased~~

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~~8.9%~~decreased 0.7% in the prior year period. For the third 13 weeks of fiscal ~~2021,~~2022, e-commerce comparable sales ~~increased 7.3%~~decreased 8.6% compared to the prior year ~~period because of~~period. The decreases in comparable sales are driven by lower traffic and conversion, partially offset by an increase in average ~~ticket and higher conversion.~~ticket.

Gross ~~profit~~profit.. Gross profit as a percentage of net sales decreased ~~140~~970 basis points from ~~36.1% in the third 13 weeks of fiscal 2020 to~~ 34.7% in the third 13 weeks of fiscal ~~2021.~~2021 to 25.0% in the third 13 weeks of fiscal 2022. The overall decrease in gross profit margin was due to unfavorable ~~landed product~~merchandise margin, ~~e-commerce shipping expenses and inventory damages, partially offset by favorable inventory shrink,~~ distribution center costs, store occupancy costs ~~store~~and outbound freight costs, ~~and other costs. Landed product~~partially offset by favorable depreciation expense. Merchandise margin decreased approximately ~~300~~480 basis points from ~~61.1% in the third 13 weeks of fiscal 2020 to 58.1%~~57.7% in the third 13 weeks of fiscal 2021 to 52.9% in the third 13 weeks of fiscal 2022, mainly due to ~~an increase in discounts~~heavier discounting associated with our efforts to reduce inventory levels and higher inbound freight ~~costs due to supply chain cost increases, partially offset by direct import savings. E-commerce shipping~~rates. Distribution center costs increased approximately 80290 basis points ~~as a percentage~~to 7.2% of net sales due to ~~a lower percentage of e-commerce orders being fulfilled~~operational inefficiencies in ~~store compared to the prior year period~~our distribution centers resulting from elevated inventory levels and ~~shipping rate increases. Inventory damages~~uneven product flows. Store occupancy costs increased approximately 60130 basis points ~~as a percentage~~to 10.8% of net sales due to the sales deleverage on these fixed costs. Outbound freight costs, including both store and e-commerce shipping expenses, increased ~~inventory levels. Inventory shrinkage decreased~~approximately 110 basis points ~~as a percentage~~to 8.0% of net sales due to ~~unfavorable annual physical~~additional routes deployed to move more product due to elevated inventory ~~results in the prior year period. Distribution~~levels and increased shipping rates and fuel costs. Depreciation of store and distribution center ~~costs~~assets decreased approximately 9040 basis points ~~as a percentage~~to 1.9% of net sales ~~due to a favorable warehouse expense capitalization adjustment because~~in the third 13 weeks of the increase in inventory. Store occupancy and depreciation costs decreased approximately 60 basis points as a percentage of net sales due to store closures and negotiated rent reductions along with lower depreciation expense. Outbound freight costs decreased approximately 20 basis points as a percentage of net sales due to reduced routes from the distribution centers to the stores. Other costs were favorable by 20 basis points as a percentage of net sales due to minor deferred revenue adjustments.fiscal 2022.

Compensation and benefits. Compensation and benefits as a percentage of net sales ~~decreased~~increased approximately ~~100~~230 basis points from ~~14.6% in the third 13 weeks of fiscal 2020 to~~ 13.6% in the third 13 weeks of fiscal 2021 to 15.9% in the third 13 weeks of fiscal 2022 primarily due to ~~a decrease~~sales deleverage and increased corporate and store salaries expense mainly due to favorable adjustments in ~~corporate bonus expense~~.the prior year period.

Other operating expenses. Other operating expenses as a percentage of net sales ~~increased~~decreased approximately ~~190~~60 basis points from ~~11.4%~~13.6% in the third 13 weeks of fiscal ~~2020~~2021 to ~~13.3%~~13.0% in the third 13 weeks of fiscal ~~2021.~~2022. The ~~increase~~decrease as a percentage of net sales was

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primarily related ~~to an increase in advertising expenses due to intentional funding of incremental advertising related to customer acquisition in the current year period compared~~ to a reduction in advertising expenses, partially offset by increased insurance expenses due to favorable insurance claims adjustments in the prior year ~~period when natural demand was higher, which was partially offset by favorable insurance claims adjustments.~~period.

~~Asset impairment. During~~Income tax expense. We recorded income tax expense of approximately $57,000, or 0.8% of the loss before income taxes, during the third 13 weeks of fiscal ~~2021, we recorded an impairment charge of approximately $444,000~~2022, compared to ~~an impairment charge of approximately $177,000 in the prior year period. See Note 10 – Impairment in the condensed consolidated financial statements for discussion of impairment.~~

~~Income tax expense.~~ ~~We recorded~~ an income tax expense of approximately $1.8 million or 19.9% of income before income taxes, during the ~~third 13 weeks of fiscal 2021 compared to an income tax expense of approximately $691,000 or 5.3% of the income before income taxes, during the~~ prior year period. The change in ~~income taxes~~the tax rate for the ~~13-week period ended October 30, 2021,~~third 13 weeks of fiscal 2022 compared to the prior ~~year~~ period was primarily due to ~~calculating~~ the ~~tax provision under~~federal net operating loss carryforward now projected by the ~~discrete method instead of the annual effective tax rate method in the prior year period.~~Company for fiscal 2022, which is fully offset by a valuation allowance.

Net (loss) income and (loss) earnings per share. We reported net loss of $7.3 million, or $0.58 per diluted share, for the third 13 weeks of fiscal 2022 as compared to net income of $7.2 million, or $0.51 per diluted share, for the third 13 weeks of fiscal ~~2021 as compared to net income of $12.4 million, or $0.82 per diluted share, for the third 13 weeks of fiscal 2020.~~2021.

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39-Week Period Ended October ~~30, 2021~~29, 2022 Compared to the 39-Week Period EndedOctober ~~31, 2020~~30, 2021

Results of operations.The table below sets forth selected results of our operations both in dollars (in thousands) and as a percentage of net sales for the periods indicated:


	39-Week Period Ended
	October 29, 2022						October 30, 2021						Change
	$			%			$			%			$			%
Net sales	$	336,348			100.0	%	$	381,989			100.0	%	$	(45,641	)		(11.9	)%
Cost of sales		256,844			76.4			252,223			66.0			4,621			1.8
Gross profit		79,504			23.6			129,766			34.0			(50,262	)		(38.7	)
Operating expenses:
Compensation and benefits		63,193			18.8			60,326			15.8			2,867			4.8
Other operating expenses		50,996			15.2			53,245			13.9			(2,249	)		(4.2	)
Depreciation (exclusive of depreciation included in cost of sales)		4,870			1.4			4,898			1.3			(28	)		(0.6	)
Total operating expenses		119,059			35.4			118,469			31.0			590			0.5
Operating (loss) income		(39,555	)		(11.8	)		11,297			3.0			(50,852	)		(450.1	)
Interest expense		1,226			0.4			240			0.1			986			410.8
Other income		(235	)		(0.1	)		(243	)		(0.1	)		8			(3.3	)
(Loss) Income before income taxes		(40,546	)		(12.1	)		11,300			3.0			(51,846	)		(458.8	)
Income tax expense (benefit)		355			0.1			1,726			0.5			(1,371	)		(79.4	)
Net income (loss)	$	(40,901	)		(12.2	)%	$	9,574			2.5	%	$	(50,475	)		(527.2	)%

39-Week Period Ended

October 30, 2021

October 31, 2020

Change

$

%

$

%

$

%

Net sales

$
381,989

100.0
%

$
348,578

100.0
%

$
33,411

9.6
%
Cost of sales

252,223

66.0

249,751

71.6

2,472

1.0

Gross profit

129,766

34.0

98,827

28.4

30,939

31.3

Operating expenses:

Compensation and benefits

60,326

15.8

60,157

17.3

169

0.3

Other operating expenses

52,491

13.7

44,843

12.9

7,648

17.1

Depreciation (exclusive of depreciation
included in cost of sales)

4,898

1.3

4,683

1.3

215

4.6

Asset impairment

754

0.2

9,027

2.6

(8,273
)

(91.6
)
Total operating expenses

118,469

31.0

118,710

34.1

(241
)

(0.2
)
Operating income (loss)

11,297

3.0

(19,883
)

(5.7
)

31,180

(156.8
)
Interest expense

240

0.1

484

0.1

(244
)

(50.4
)
Other income

(243
)

(0.1
)

(272
)

—

29

(10.7
)
Income (loss) before income taxes

11,300

3.0

(20,095
)

(5.8
)

31,395

(156.2
)
Income tax expense (benefit)

1,726

0.5

(15,650
)

(4.5
)

17,376

(111.0
)
Net income (loss)

$
9,574

2.5
%

$
(4,445
)

(1.3
)%

$
14,019

(315.4
)%

Net sales.Net sales ~~increased 9.6%~~decreased 11.9% to ~~$382.0~~$336.3 million for the first 39 weeks of fiscal ~~2021~~2022 compared to ~~$348.6~~$382.0 million for the prior year period. Comparable sales, including e-commerce sales, ~~increased 13.7%~~decreased 10.4%, or ~~$45.6~~$38.5 million for the first 39 weeks of fiscal ~~2021~~2022 compared to the prior year ~~period, which was partly offset by a $12.2 million decrease in sales due to permanently closed stores.~~period. Comparable sales, including e-commerce sales, ~~decreased 6.7%~~increased 13.7% in the prior year period. For the first 39 weeks of fiscal ~~2021,~~2022, e-commerce comparable sales ~~increased 9.2% compared~~decreased 14.0%. The decreases in comparable sales is primarily due to ~~the prior year period mainly due to~~a decrease in traffic and conversion in stores and online, partially offset by an increase in average ticket. ~~For stores, the comparable sales mainly improved due to significant temporary store closures due to the COVID-19 pandemic in the prior year period.~~

Gross ~~profit~~profit. . Gross profit as a percentage of net sales ~~increased 560~~decreased 1,040 basis points from ~~28.4% in the first 39 weeks of fiscal 2020 to~~ 34.0% in the first 39 weeks of fiscal ~~2021.~~2021 to 23.6% in the first 39 weeks of fiscal 2022. The overall ~~increase~~decrease in gross profit margin was due to ~~favorable~~unfavorable merchandise margin, store occupancy costs, ~~landed product margin,~~ distribution center costs ~~inventory shrinkage~~ and ~~store~~ outbound freight costs, partially offset by ~~unfavorable e-commerce shipping expenses, inventory damages and other costs. Store occupancy and~~favorable depreciation ~~costs~~expense. Merchandise margin decreased approximately 330 basis points as a percentage of net sales due to the leverage of increased sales, store closures and negotiated rent reductions and lower depreciation expense. Landed product margin increased approximately 110600 basis points from ~~57.3% in the first 39 weeks of fiscal 2020 to 58.4%~~58.1% in the first 39 weeks of fiscal 2021 ~~mainly due~~ to ~~the continued benefit from direct sourcing, partially offset by higher inbound freight costs. Distribution center costs decreased approximately 90 basis points~~52.1% in the first 39 weeks of fiscal ~~2021~~2022 mainly due to the impact of discounting product to drive sales ~~leverage~~ and ~~a favorable warehouse expense capitalization adjustment driven by higher~~move through inventory, ~~levels compared to the prior year period. Inventory shrinkage decreased~~as well as increased incremental inbound freight costs. Store occupancy costs increased approximately 80190 basis points ~~as a percentage~~to 12.5% of net sales due to ~~favorable annual physical~~the sales deleverage on these fixed costs. Distribution center costs increased approximately 180 basis points to 5.7% of net sales due to higher temporary labor costs and operational inefficiencies from elevated inventory ~~results.~~levels and implementation of a new warehouse management system. Outbound freight costs, including both store and e-commerce shipping expenses, increased approximately 110 basis points to 7.8% of net sales primarily due to rate and fuel inflation and additional routes deployed to move more product. Depreciation of store and distribution center assets decreased approximately 3040 basis points ~~as a percentage~~to 2.4% of net sales in the first 39 weeks of fiscal 2021 due to sales leverage. E-commerce shipping costs increased approximately 40 basis points as a percentage of net sales due to a lower percentage of e-commerce orders being fulfilled in store compared to the prior year period. Inventory damages increased approximately 20 basis points as a percentage of net sales. Other costs were unfavorable 20 basis points as a percentage of net sales due to minor deferred revenue adjustments.2022.

Compensation and benefits.Compensation and benefits as a percentage of net sales ~~decreased~~increased approximately ~~150~~300 basis points from ~~17.3% in the first 39 weeks of fiscal 2020 to~~ 15.8% in the first 39 weeks of fiscal 2021 to 18.8% in the first 39 weeks of fiscal 2022 primarily due to ~~sales leverage~~the deleverage of ~~both~~higher store

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and corporate payroll expenses ~~because of the temporary COVID-19 store closures, which reduced sales in the prior year period.~~due to wage increases, along with higher employee benefits expenses, partially offset by lower corporate bonus expenses.

Other operating expenses. Other operating expenses as a percentage of net sales increased approximately 80130 basis points from ~~12.9%~~13.9% in the first 39 weeks of fiscal ~~2020~~2021 to ~~13.7% in~~15.2% for the first 39 weeks of fiscal ~~2021.~~2022. The increase as a percentage of net sales was primarily related to ~~an increase~~the decline in ~~advertising~~net sales, along with increased insurance expenses due to ~~intentional funding of incremental advertising in the current year period compared to a reduction in advertising expenses~~favorable claims adjustments in the prior year period, ~~when natural demand was higher, which was~~ partially offset by ~~favorable insurance claims adjustments.~~reduced advertising expenses.

~~Table~~Income tax expense (benefit). We recorded income tax expense of ~~Contents~~

~~Asset impairment. During~~approximately $355,000, or 0.9% of the loss before income taxes, during the first 39 weeks of fiscal ~~2021, we recorded an impairment charge of approximately $754,000~~2022 compared to ~~an impairment charge of approximately $9.0 million in the prior year period. See Note 10 – Impairment in the condensed consolidated financial statements for discussion of impairment.~~

~~Income tax expense (benefit).~~ ~~We recorded an~~ income tax expense of ~~approximately~~ $1.7 million, or 15.3% of income before income taxes, during the prior year period. Income taxes for the 39-week periods ended October 29, 2022 were minimal due to valuation allowances against deferred tax assets.

Net (loss) income and (loss) earnings per share. We reported net loss of $40.9 million, or a loss of $3.22 per diluted share, for the first 39 weeks of fiscal ~~2021~~2022 as compared to an income tax benefit of $15.7 million, or 77.9% of the loss before income taxes, during the prior year period. The change in income taxes for the 39-week period ended October 30, 2021, compared to the prior year period, was primarily due to recording a $12.3 million income tax benefit during the prior year period related to the carryback of the 2019 federal net operating loss to prior periods pursuant to the CARES Act and recording an additional income tax benefit of $2.0 million related to the carry back of the projected fiscal 2020 loss to years with a 35% statutory tax rate.

~~Net income (loss) and earnings (loss) per share.~~ ~~We reported~~ net income of $9.6 million, or earnings of $0.64 per diluted share, for the first 39 weeks of fiscal ~~2021 as compared to a net loss of $4.4 million, or $0.31 per diluted share, for the first 39 weeks of fiscal 2020.~~2021.

Non-GAAP Financial Measures

To supplement our unaudited consolidated condensed financial statements presented in accordance with GAAP, we provide certain non-GAAP financial measures, including EBITDA, adjusted EBITDA, adjusted operating (loss) income, ~~(loss),~~ adjusted net (loss) income ~~(loss)~~ and adjusted diluted (loss) earnings ~~(loss)~~ per share. These measures are not in accordance with, and are not intended as alternatives to, GAAP financial measures. We use these non-GAAP financial measures internally in analyzing our financial results and believe that they provide useful information to analysts and investors, as a supplement to GAAP financial measures, in evaluating our operational performance.

We define EBITDA as net income or loss before interest, provision for income tax, and depreciation and amortization, adjusted EBITDA as EBITDA with non-GAAP adjustments and adjusted operating (loss) income ~~(loss)~~ as operating (loss) income ~~(loss)~~ with non-GAAP adjustments. We define adjusted net (loss) income ~~(loss)~~ and adjusted diluted (loss) earnings ~~(loss)~~ per share by adjusting the applicable GAAP financial measures for non-GAAP adjustments.

Non-GAAP financial measures are intended to provide additional information only and do not have any standard meanings prescribed by GAAP. Use of these terms may differ from similar measures reported by other companies. Each non-GAAP financial measure has its limitations as an analytical tool, and you should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP.

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The following table shows a reconciliation of operating (loss) income ~~(loss)~~ to EBITDA, adjusted EBITDA and adjusted operating (loss) income ~~(loss)~~ for the 13-week and 39-week periods ended October ~~30, 2021~~29, 2022 and October ~~31, 2020~~30, 2021 and a reconciliation of net (loss) income ~~(loss)~~ and diluted (loss) earnings ~~(loss)~~ per share to adjusted net (loss) income ~~(loss)~~ and adjusted diluted (loss) earnings ~~(loss)~~ per share for the 13-week and 39-week periods ended October ~~30, 2021~~29, 2022 and October ~~31, 2020:~~30, 2021:


	13-Week Period Ended						39-Week Period Ended
	October 29, 2022			October 30, 2021			October 29, 2022			October 30, 2021
Operating (loss) income	$	(6,660	)	$	9,020		$	(39,555	)	$	11,297
Depreciation and amortization		4,088			5,049			12,925			15,535
EBITDA		(2,572	)		14,069			(26,630	)		26,832
Non-GAAP adjustments:
Closed store and lease termination costs in cost of sales(1)		—			(126	)		46			(1,632	)
Asset impairment(2)		219			444			447			754
Stock-based compensation expense(3)		295			438			1,460			1,321
Severance charges(4)		397			2			776			293
Total adjustments in operating expenses		911			884			2,683			2,368
Total non-GAAP adjustments		911			758			2,729			736
Adjusted EBITDA		(1,661	)		14,827			(23,901	)		27,568
Depreciation and amortization		4,088			5,049			12,925			15,535
Adjusted operating (loss) income	$	(5,749	)	$	9,778		$	(36,826	)	$	12,033

Net (loss) income	$	(7,341	)	$	7,229		$	(40,901	)	$	9,574
Non-GAAP adjustments, net of tax:
Closed store and lease termination costs in cost of sales(1)		—			(90	)		35			(1,229	)
Asset impairment(2)		167			334			344			568
Stock-based compensation expense, including tax impact(3)		183			277			531			427
Severance charges(4)		305			—			598			220
Total adjustments in operating expenses		655			611			1,473			1,215
Tax valuation allowance(5)		1,843			(409	)		10,150			(519	)
Total non-GAAP adjustments, net of tax		2,498			112			11,658			(533	)
Adjusted net (loss) income	$	(4,843	)	$	7,341		$	(29,243	)	$	9,041

Diluted (loss) earnings per share	$	(0.58	)	$	0.51		$	(3.22	)	$	0.64
Adjusted diluted (loss) earnings per share	$	(0.38	)	$	0.51		$	(2.31	)	$	0.60

Diluted weighted average shares outstanding		12,754			14,268			12,686			14,953

13-Week Period Ended

39-Week Period Ended

October 30, 2021

October 31, 2020

October 30, 2021

October 31, 2020

Operating income (loss)

$
9,020

$
13,056

$
11,297

$
(19,883
)
Depreciation and amortization

5,049

5,824

15,535

17,810

EBITDA

14,069

18,880

26,832

(2,073
)
Non-GAAP adjustments:

Closed store and lease termination costs in cost of sales⁽¹⁾

(126
)

(752
)

(1,632
)

(695
)
Asset impairment⁽²⁾

444

177

754

9,027

Stock-based compensation expense⁽³⁾

438

276

1,321

912

Severance charges⁽⁴⁾

2

10

293

890

Other costs included in operating expenses⁽⁵⁾

—

70

—

204

Total adjustments in operating expenses

884

533

2,368

11,033

Total non-GAAP adjustments

758

(219
)

736

10,338

Adjusted EBITDA

14,827

18,661

27,568

8,265

Depreciation and amortization

5,049

5,824

15,535

17,810

Adjusted operating income (loss)

$
9,778

$
12,837

$
12,033

$
(9,545
)

Net income (loss)

$
7,229

$
12,356

$
9,574

$
(4,445
)
Non-GAAP adjustments, net of tax:

Closed store and lease termination costs in cost of sales⁽¹⁾

(90
)

(577
)

(1,229
)

(533
)
Asset impairment⁽²⁾

334

121

568

6,927

Stock-based compensation expense, including tax impact⁽³⁾

277

196

427

1,082

Severance charges⁽⁴⁾

—

6

220

683

Other costs included in operating expenses⁽⁵⁾

—

54

—

155

Total adjustments in operating expenses

611

377

1,215

8,847

Tax valuation allowance⁽⁶⁾

(409
)

(2,431
)

(519
)

3,040

CARES Act - net operating loss carry back⁽⁷⁾

—

268

—

(14,328
)
Total non-GAAP adjustments, net of tax

112

(2,363
)

(533
)

(2,974
)
Adjusted net income (loss)

$
7,341

$
9,993

$
9,041

$
(7,419
)

Diluted earnings (loss) per share

$
0.51

$
0.82

$
0.64

$
(0.31
)
Adjusted diluted earnings (loss) per share

$
0.51

$
0.66

$
0.60

$
(0.53
)

Diluted weighted average shares outstanding

14,268

15,075

14,953

14,121

(1)

Costs associated with asset disposals, closed stores and lease termination costs and any gains on lease terminations.

(2)

Asset impairment charges are related to property and equipment.

(3)

Stock-based compensation expense includes amounts expensed related to equity incentive plans.

(4)

Severance charges include expenses related to severance agreements and permanent store closure compensation costs.

(5)

To remove the impact of the change in our valuation allowance against deferred tax assets in order to present adjusted results with a normalized tax rate.

~~(1)~~

Costs associated with closed stores and lease termination costs, including gains on lease terminations, amounts paid to third parties for rent reduction negotiations and lease termination fees paid to landlords for store closings.

~~(2)~~

~~Impairment charges include both right-of-use asset and property and equipment impairment charges.~~

~~(3)~~

~~Stock-based compensation expense includes amounts expensed related to equity incentive plans.~~

~~(4)~~

~~Severance charges include expenses related to severance agreements. This also includes permanent store closure compensation costs.~~

~~(5)~~

~~Other costs include lease negotiation fees associated with corporate rent reduction.~~

~~(6)~~

~~To remove the change in our valuation allowance against deferred tax assets.~~

~~(7)~~

To remove the impact of the income tax benefit recorded in fiscal 2020 related to the carry back of fiscal 2019 and estimated fiscal 2020 federal net operating losses to prior periods as permitted under the CARES Act.

Liquidity and Capital Resources

Our principal capital requirements are for working capital and capital expenditures. Working capital consists mainly of merchandise inventories offset by accounts payable, which typically reach their peak by the early portion of the fourth quarter of each fiscal year. Capital expenditures primarily relate to technology and omni-channel projects, distribution center and supply chain

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enhancements, new or relocated stores and existing store ~~remodels.~~refreshes, remodels and maintenance. Historically, we have funded our working capital and capital expenditure requirements with ~~internally-generated~~internally generated cash and borrowings under our revolving credit facility. In fiscal 2022, we funded our increased inventory levels with borrowings on the revolving credit facility. We expect to sell through excess inventory levels in the second half of the year during our holiday and harvest seasons, which should drive cash flow and reduce borrowings.

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Cash flows from operating activities. Net cash used in operating activities was approximately $58.2 million and $38.7 million during the first 39 weeks of fiscal ~~2021 compared to net cash provided by operating activities of approximately $14.5 million for~~2022 and the first 39 weeks of fiscal ~~2020.~~2021, respectively. Cash flows from operating activities depend heavily on operating performance, changes in working capital and the timing and amount of payments for income taxes. The increase in the amount of cash used in operations as compared to the prior year period was mainly due to ~~an unfavorable change~~a decline in operating performance and changes in working capital as we increased inventory purchases in order to rebuild our inventory levels from our decreased inventory levels in fiscal 2020 as a result of action taken in connection with the COVID-19 pandemic, which was partially offset by increased accounts payable.capital.

Cash flows from investing activities. Net cash used in investing activities for the first 39 weeks of fiscal ~~2021~~2022 consisted mainly of ~~$5.2~~$7.0 million in capital expenditures as compared to ~~$7.6~~$5.2 million in capital expenditures for the prior year period. The table below sets forth capital expenditures by category (in thousands) for the periods indicated:


	39-Week Period Ended				39-Week Period Ended
	October 30, 2021		October 31, 2020		October 29, 2022		October 30, 2021
Technology and omni-channel projects	$	2,328	$	1,974	$	3,536	$	2,328
Existing stores						1,959		635
Distribution center and supply chain enhancements		1,124		4,496		907		1,124
New and relocated stores		772		—		426		772
Existing stores		635		758
Corporate		303		352		136		303
Total capital expenditures	$	5,162	$	7,580	$	6,964	$	5,162

The capital expenditures in the current year period related primarily to technology and omni-channel projects, the remodel and maintenance of existing stores, distribution center and supply chain enhancements and the opening of one new store. Capital expenditures in the prior year period related primarily to technology and omni-channel projects, and distribution center and supply chain enhancements and the opening of two new stores and two store relocations during the period. Capital expenditures in the prior year period related primarily to distribution center and supply chain enhancements including consolidating the e-commerce distribution center into the store distribution center in Jackson, Tennessee, standing up new e-commerce hubs and upgrading the warehouse management system.

Cash flows from financing activities. During the first 39 weeks of fiscal 2022, net cash provided by financing activities was $51.4 million, as we borrowed $60.0 million under our revolving credit facility, which was partially offset by the repurchase and retirement of our common stock pursuant to our share repurchase plan of $6.3 million and $2.4 million of cash used in net share settlement of stock options and restricted stock units. The increased borrowings on the revolving credit facility are due to the elevated inventory levels because of the lower than anticipated sales. As the Company sells through the existing inventory and sales increase due to the seasonality of the business, the borrowings should decrease in the fourth quarter of fiscal 2022. During the first 39 weeks of fiscal 2021, net cash used in financing activities ofwas approximately $30.1 million ~~was~~ primarily related to the repurchase and retirement of our common stock pursuant to our share repurchase plan of $29.8 million. ~~During the first 39 weeks of fiscal 2020, net cash used in financing activities was approximately $20,000, as~~

~~we borrowed and made repayments of $40.0 million under our revolving~~Senior credit facility.

~~Senior credit facility.~~ On December 6, 2019, we entered into the Credit Agreement with Bank of America, N.A. as administrative agent, collateral agent and lender. The Credit Agreement contains a $75 million senior secured revolving credit facility, a swingline availability of $10 million, a $25 million incremental accordion feature and a maturity date of December 2024. Advances under the Credit Agreement bear interest at an annual rate equal to LIBOR plus a margin ranging from 125 to 175 basis points with no LIBOR floor, and the fee paid to the lender on the unused portion of the credit facility is 25 basis points per annum.

Borrowings under the Credit Agreement are subject to certain conditions, ~~and the Credit Agreement~~ contains customary events of default, including, without limitation, failure to make payments, a cross-default to certain other debt, breaches of covenants, breaches of representations and warranties, a change in control, certain monetary judgments and bankruptcy and ~~certain events under ERISA.~~ERISA events. Upon any such event of default, the principal amount of any unpaid loans and all other obligations under the Credit Agreement may be declared immediately due and payable. The maximum availability under the Credit Agreement is limited by a borrowing base formula, which consists of a percentage of eligible inventory and eligible credit card receivables, less reserves.

We are subject to a Second Amended and Restated Security Agreement (“Security Agreement”) with our lender. Pursuant to the Security Agreement, we pledged and granted to the administrative agent, for the benefit of itself and the secured parties specified therein, a lien on and security interest in all of the rights, title and interest in substantially all of our assets to secure the payment and performance of the obligations under the Credit Agreement.

As of October ~~30, 2021,~~29, 2022, we were in compliance with the covenants in the Credit Agreement. Under the Credit Agreement, there were noapproximately $60.0 million of outstanding borrowings and ~~a $600,000 letter~~no letters of credit outstanding with approximately ~~$74.4~~$15.0 million available for borrowing as of October ~~30, 2021.~~29, 2022. Subsequent to October 29, 2022, we repaid $30.0 million of outstanding borrowings under the Credit Agreement.

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As of October ~~30, 2021,~~29, 2022, our balance of cash and cash equivalents was approximately ~~$26.5~~$11.2 million. We believe that the combination of our cash balances, cash flow from operations and availability under our Credit Agreement will be sufficient to fund our planned capital expenditures and working capital requirements ~~for at least~~through the end of fiscal 2022 and over the next ~~twelve months.~~

~~Table of Contents~~several fiscal years.

Share repurchase plan. On December 3, 2020, September ~~24, 2018,~~2, 2021 and January 6, 2022, we announced that our Board of Directors authorized a share repurchase plan providing for the purchase in the aggregate of up to ~~$10~~$20 million, $20 million and $30 million, respectively, of our outstanding common stock. This share repurchase plan was completed during the fourth quarter of fiscal 2020. On December 3, 2020, we announced that our Board of Directors authorized a new share repurchase plan providing for the purchase in the aggregate of $20 million of the Company’s outstanding common stock. This share repurchase plan was completed during the 13-week period ended October 30, 2021. On September 2, 2021, the Company announced that its Board of Directors authorized a new share repurchase plan providing for the purchase in the aggregate of $20 million of the Company’s outstanding common stock. As of October 30, 2021, we had approximately $10.0 million remaining under the current share repurchase plan. The table below sets forth selected share repurchase plan information (in thousands, except share amounts) for the periods indicated:

13-Week Period Ended

39-Week Period Ended

October 30, 2021

October 31, 2020

October 30, 2021

October 31, 2020

Shares repurchased and retired

805,744

—

1,414,642

—

Share repurchase cost

$
16,457

$
—

$
29,821

$
—

Repurchases of shares ~~under all Company repurchase plans will be~~are made in accordance with applicable securities laws and may be made from time to time in the open market or by negotiated transactions. The amount and timing of repurchases ~~will be~~are based on a variety of factors, including stock price, regulatory limitations and other market and economic factors. The share repurchase ~~plan does~~plans do not require us to repurchase any specific number of shares, and we may terminate the repurchase ~~plan~~plans at any time. As of October 29, 2022, we had approximately $26.3 million remaining under the current share repurchase plan.

The table below sets forth selected share repurchase plan information (in thousands, except share amounts) for the periods indicated:

~~Contractual Obligations~~


	13-Week Period Ended				39-Week Period Ended
	October 29, 2022		October 30, 2021		October 29, 2022		October 30, 2021
Shares repurchased and retired		—		805,744		479,966		1,414,642
Share repurchase cost	$	—	$	16,457	$	6,253	$	29,821

~~Not applicable to smaller reporting companies.~~

~~Off-Balance Sheet Arrangements~~

The Company has no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

~~Critical~~Critical Accounting Policies and Estimates

During the 13-week period ended July 30, 2022, we made a change in estimate related to income taxes due to the federal net operating loss carry-forward now projected by the Company for fiscal 2022, which caused the reversal of the tax benefit recorded in the 13-week period ended April 30, 2022. There have been no ~~significant~~other material changes to our critical accounting policies or estimates during the ~~first 39 weeks of fiscal 2021.~~39-week period ended October 29, 2022. Refer to our Annual Report for a summary of our critical accounting ~~policies.~~policies and a discussion of the critical accounting estimates and assumptions impacting our consolidated financial statements.

New Accounting Pronouncements

See Note 1110 – New Accounting Pronouncements in the condensed consolidated financial statements for accounting pronouncements not yet adopted.

~~Cautionary Statement for Purposes of the “Safe Harbor” Provisions of thePrivate Securities Litigation Reform Act of 1995~~

The following information is provided pursuant to the “Safe Harbor” provisions of the Private Securities Litigation Reform Act of 1995. Certain statements under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Quarterly Report on Form 10-Q are “forward-looking statements” made pursuant to these provisions. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Words such as “should,” “likely to,” “forecasts,” “strategy,” “goal,” “anticipates,” “believes,” “expects,” “estimates,” “intends,” “plans,” “projects” and similar expressions may identify such forward-looking statements. Such statements are subject to certain risks and uncertainties, including, without limitation, the impact of public health issues, such as the current global pandemic of COVID-19, which could cause actual results to differ materially from the results projected in such statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.

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The risk factors listed below and in the other sections of this Form 10-Q provide examples of risks, uncertainties and events that could cause our actual results to differ materially from the expectations expressed in our forward-looking statements. These forward-looking statements speak only as of the date of this report, and, except as required by law, we undertake no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this report.

We caution readers that the following important risk factors, among others, have in the past, in some cases, affected and could in the future affect our actual results of operations and cause our actual results to differ materially from the results expressed in any forward-looking statements made by us or on our behalf.

•

~~If we fail to identify, develop and successfully implement immediate action plans and longer-term strategic initiatives, our financial performance could be negatively impacted.~~

•

~~If we are unable to successfully maintain, improve and grow a best-in-class omni-channel experience for our customers, it could adversely affect our sales, results of operations and reputation.~~

•

If we are unable to profitably operate our existing stores, grow e-commerce sales and effectively execute our store closing strategy, we may not be able to execute our business strategy, resulting in a decrease in net sales and profitability.

•

~~We may not be able to successfully anticipate consumer trends, and our failure to do so may lead to loss of consumer acceptance of our products, resulting in reduced net sales.~~

•

Our success depends upon our marketing, advertising and promotional efforts, and loyalty programs. If we are unable to implement them successfully, or if our competitors market, advertise or promote more effectively than we do, our revenue may be adversely affected.

•

~~We may not be able to successfully respond to technological change, our website could become obsolete and our financial results and conditions could be adversely affected.~~

•

~~If we fail to maintain a positive social media brand perception, it could have a negative impact on our operations, financial results and reputation.~~

•

~~If we do not generate sufficient cash flow from operations, we may not be able to implement our business strategies and fund our obligations.~~

•

Insufficient cash flows from operations could result in the substantial utilization of our secured revolving credit facility or similar financing, which may limit our ability to conduct certain activities.

•

~~We face an extremely competitive specialty retail business market, and such competition could result in a reduction of our prices and a loss of our market share.~~

•

~~Our results could be negatively impacted if our merchandise offering suffers a substantial impediment to its reputation due to real or perceived quality issues.~~

•

~~Our business depends upon hiring, training and retaining qualified employees.~~

•

~~Weather conditions could adversely affect our sales and/or profitability by affecting consumer shopping patterns.~~

•

We are exposed to the risk of natural disasters, pandemic outbreaks, global political events, war and terrorism that could disrupt our business and result in lower sales, increased operating costs and capital expenditures.

•

~~The COVID-19 global pandemic has had and is expected to continue to have a material impact on our business and results of operations.~~

•

~~Our performance may be affected by general economic conditions.~~

•

~~Our profitability is vulnerable to inflation and cost increases.~~

•

Our business is highly seasonal and our fourth quarter contributes to a disproportionate amount of our net sales, net income and cash flow, and any factors negatively impacting us during our fourth quarter could reduce our net sales, net income and cash flow, leaving us with excess inventory and making it more difficult for us to finance our capital requirements.

•

~~Inventory loss and theft and the inability to anticipate inventory needs may result in reduced net sales.~~

•

~~Failure to control merchandise returns could negatively impact the business.~~

•

~~We may experience significant variations in our quarterly results.~~

•

~~Our comparable store net sales fluctuate due to a variety of factors.~~

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•

~~Our freight costs and thus our cost of goods sold are impacted by changes in fuel prices.~~

•

~~New legal requirements could adversely affect our operating results.~~

•

~~Our business could be negatively impacted by corporate citizenship and sustainability matters.~~

•

~~Product liability claims could adversely affect our reputation.~~

•

~~If we fail to protect our brand name, competitors may adopt trade names that dilute the value of our brand name.~~

•

We are dependent on foreign imports for a significant portion of our merchandise, and any changes in the trading relations and conditions between the United States and the relevant foreign countries may lead to a decline in inventory resulting in a decline in net sales, or an increase in the cost of sales resulting in reduced gross profit.

•

~~We depend on a number of vendors to supply our merchandise, and any delay in merchandise deliveries from certain vendors may lead to a decline in inventory, which could result in a loss of net sales.~~

•

Our success is highly dependent on our planning and control processes and our supply chain, and any disruption in or failure to continue to improve these processes may result in a loss of net sales and net income.

•

~~Our business could suffer if a manufacturer fails to use acceptable labor and environmental practices.~~

•

Failure to protect the integrity and security of individually identifiable data of our customers and employees could expose us to litigation and damage our reputation; the expansion of our e-commerce business has inherent cybersecurity risks that may result in business disruptions.

•

~~Our hardware and software systems are vulnerable to damage that could harm our business.~~

•

~~We depend on key personnel, and, if we lose the services of any member of our senior management team, we may not be able to run our business effectively.~~

•

~~Our charter and bylaw provisions and certain provisions of Tennessee law may make it difficult in some respects to cause a change in control of Kirkland’s and replace incumbent management.~~

•

~~If we fail to maintain an effective system of internal control, we may not be able to accurately report our financial results.~~

•

~~Litigation may adversely affect our business, financial condition, results of operations or liquidity.~~

•

~~The market price for our common stock might be volatile and could result in a decline in the value of your investment.~~

•

~~The uncertainty regarding the potential phase-out of the LIBOR could adversely impact our results of operations and cash flows.~~

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of October 29, 2022, we had $60.0 million in outstanding borrowings under our Credit Agreement. As of October 30, 2021, ~~and October 31, 2020~~, we had no outstanding borrowings under our Credit Agreement. We borrowed $60.0 million under our Credit Agreement during the first 39 weeks of fiscal 2022, and we had no borrowings or repayments under our Credit Agreement during the first 39 weeks of fiscal 2021. We are exposed to interest rate changes, primarily as a result of borrowings under our ~~revolving credit facility~~Credit Agreement, as discussed in Note 9 — Senior Credit Facility in the notes to the condensed consolidated financial statements, which bear interest based on variable rates. ~~A 1% increase or decrease in the~~As our borrowings and interest ~~rate on borrowings~~rates rise under our revolving credit facility, atinterest expense has increased on our ~~recent borrowing levels would not have a material impact to our results~~condensed consolidated statements of operations.

We manage cash and cash equivalents in various institutions at levels beyond federally insured limits per institution, and we may purchase investments not guaranteed by the Federal Deposit Insurance Company. Accordingly, there is a risk that we will not recover the full principal of our investments or that their liquidity may be diminished.

We were not engaged in any foreign exchange contracts, hedges, interest rate swaps, derivatives or other financial instruments with significant market risk as of October ~~30, 2021.~~29, 2022.

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ITEM 4. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures. Both our Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal financial officer), after the evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended) was performed by management with the participation of our Chief Executive Officer and Chief Financial Officer, have concluded that, as of October ~~30, 2021,~~29, 2022, our disclosure controls and procedures were effective as of the end of the period covered by this report.

Change in internal controls over financial reporting. There have been no changes in internal control over financial reporting that have occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

2221

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PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

For a description of the Company’s legal proceedings, refer to Note 6 — Commitments and Contingencies in the notes to the condensed consolidated financial statements.

ITEM 1A. RISK FACTORS

In addition to factors set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Cautionary Statement for Purposes of the ‘Safe Harbor’ Provisions of the Private Securities Litigation Reform Act of 1995,” in Part I - Item 2 of this report, you should carefully consider theThe risk factors ~~discussed~~described in Part I, “Item 1A. Risk Factors” in the Annual Report on Form 10-K for the fiscal year ended January ~~30, 2021, which could materially affect~~29, 2022, should be carefully considered together with the other information contained or incorporated by reference in this Quarterly Report on Form 10-Q and in our other filings with the SEC, in connection with evaluating the Company, our business, ~~financial condition or future results.~~and the forward-looking statements contained in this Quarterly Report on Form 10-Q. There have been no material changes to our risk factors as previously disclosed in the Annual Report. The risks described in this report and in our Annual Report are not the only risks facing our Company. ~~There have been no material changes to our risk factors as previously disclosed in the Annual Report.~~ Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Repurchases of Equity Securities

~~Shares~~There were no shares of common stock repurchased by the Company during the 13-week period ended October ~~30, 2021 were as follows:~~29, 2022. As of October 29, 2022, the Company had approximately $26.3 million remaining under the current share repurchase plan.

Period
Total Number of Shares Purchased

Average Price Paid per Share

Total Number of Shares Purchased as Part of Publicly Announced Plan

Maximum Approximate Dollar Value of Shares that May Yet be Purchased Under the Plan (in 000s)

August 1, 2021 to August 28, 2021

336,420

$
19.26

336,420

$
20,002

August 29, 2021 to October 2, 2021

145,000

19.60

145,000

17,161

October 3, 2021 to October 30, 2021

324,324

22.01

324,324

10,023

805,744

$
20.42

805,744

$
10,023

On December 3, 2020, ~~the Company~~September 2, 2021 and January 6, 2022, we announced that ~~its~~our Board of Directors authorized ~~a new~~ share repurchase ~~plan~~plans providing for the purchase in the aggregate of up to $20 million, of the Company’s outstanding common stock, which was completed during the 13-week period ended October 30, 2021. On September 2, 2021, the Company announced that its Board of Directors authorized a new share repurchase plan providing for the purchase in the aggregate of $20 million and $30 million, respectively, of ~~the Company’s~~our outstanding common stock.

Repurchases of shares ~~under all Company repurchase plans will be~~are made in accordance with applicable securities laws and may be made from time to time in the open market or by negotiated transactions. The amount and timing of repurchases ~~will be~~are based on a variety of factors, including stock price, ~~regulatory~~regulator limitations and other market and economic factors. The share repurchase ~~plan does~~plans do not require ~~the Company~~us to repurchase any specific number of shares, and ~~the Company~~we may terminate the repurchase ~~plan~~plans at any time.

ITEM 6. EXHIBITS

(a)

Exhibits.

~~(a)~~Exhibit

No.

~~Exhibits.~~

~~Exhibit~~ ~~No.~~		Description of Document
10.1+*		Employment Agreement, effective August 8, 2022, by and between W. Michael Madden and Kirkland's, Inc. (Exhibit 10.1 to the Company's Current Report on Form 8-K dated August 9, 2022)
31.1		Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a)
31.2		Certification of the Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a)
32.1		Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350
32.2		Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350
101.INS		Inline XBRL Instance Document
101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)


*	Incorporated by reference.

Management contract orof compensatory plan or arrangement.

Table of Contents

SIGNATURES

~~SIGNATURES~~

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


		KIRKLAND’S, INC.
Date: December 2, ~~2021~~2022		/s/ Steve C. Woodward
		Steve C. Woodward President and Chief Executive Officer, and Director
Date: December 2, ~~2021~~2022		/s/ ~~Nicole A. Strain~~W. Michael Madden
		~~Nicole A. Strain~~W. Michael Madden Executive Vice President, ~~and~~ Chief Financial Officer

2423

		October 30, 2021				January 30, 2021				October 31, 2020
Gift card liability, net of estimated breakage (included in accrued expenses)		$	13,201			$	13,408			$	11,915

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plan		Maximum Approximate Dollar Value of Shares that May Yet be Purchased Under the Plan (in 000s)
August 1, 2021 to August 28, 2021		336,420	$	19.26		336,420	$	20,002
August 29, 2021 to October 2, 2021		145,000		19.60		145,000		17,161
October 3, 2021 to October 30, 2021		324,324		22.01		324,324		10,023
		805,744	$	20.42		805,744	$	10,023